Danone Unveils 200 Million-Euro Saving Plan After Peltz Call

By Dermot Doherty -
Dec 13, 2012

Danone, the world’s biggest yogurt
maker, said it plans to cut about 200 million euros ($262
million) in costs over two years, a month after activist
investor Nelson Peltz called on management to reduce expenses.

The company spent months preparing the plan to trim general
and administrative costs and change Danone’s management
structure in Europe, spokeswoman Agnes Berthet-d’Anthonay said
by telephone, denying that the move was linked to Peltz.

“It’s not the kind of decision you take in one month --
there is no link between Nelson Peltz and this announcement.”

Peltz, whose Trian Fund Management LP holds a 1 percent
stake in Danone, said last month that Trian planned to engage
with management and said the Paris-based company is undervalued.
He’s now likely to “encourage management to execute on today’s
announcement,” while advocating a focus on capital returns,
said Jon Cox, an analyst at Kepler Capital Markets in Zurich.

While Peltz is supportive of Chief Executive Officer Franck Riboud, he was expected to push for cost-cutting and for the
company to be more disciplined in its use of cash, the Financial
Times reported last month, citing unidentified people.

The cost-saving plan will be based on “voluntary
measures” with a focus on “internal mobility,” Danone (BN) said.

“It is a positive move and must at least partly be seen”
as a response to pressure from Peltz, said Kepler’s Cox.

Shares Gain

Berthet-d’Anthonay declined to comment on whether Danone
management have met with Peltz. The company said it plans to
submit the cost plan to the Works Council in France by March.

Danone shares rose as much as 2.4 percent in Paris trading,
the steepest intraday gain in more than three weeks. They were
up 1.6 percent at 51.14 euros as of 10:37 a.m., the second-biggest advance in France’s benchmark CAC 40 Index.

The maker of Activia yogurt has struggled in southern
Europe this year as the region’s debt crisis continues to take a
toll on consumer spending. Danone in June cut its full-year
forecast for profit margins because of declining consumption in
the region. While the company has gross margins that exceed the
industry average, its operating margins trail those of its
consumer peer group, according to data compiled by Bloomberg.

The cost-cutting plan “demonstrates that the top
management is highly focused on fixing the business in Europe,”
Pierre Tegner, an analyst at Natixis, said in a note.

Dairy Products

Danone’s third-quarter revenue missed estimates as weakness
in Spain and Greece caused the slowest growth in sales of dairy
products in more than three years.

“We believe that this plan is mainly focused on Danone’s
dairy-products division,” Laurence Hofmann, an analyst at Oddo
Securities, said in a note to clients. “The cost reductions
will most certainly be reinvested in price reductions on its
dairy products.”

Peltz made his first fortune in the 1980s through leveraged
buyouts financed by high-yield bonds sold by Michael Milken. He
also has earned a reputation for improving the operational
management of companies, many of them consumer-focused. The 70-year-old investor typically buys stakes in companies and then
pushes them to boost their value by cutting costs or merging.